Insurers are the real villains?

horseshoe_magnet_pulling_dollar_bills_400_wht-300x150KEY TAKEAWAY: The major contributor to soaring drug list prices is continual and progressive rebating demands by Big Insurance and the PBMs.

Without at all justifying Mylan (they need to account for their own actions), do you not find it noteworthy that they raised price on EpiPen by 31% in 2015 and also saw a 7% increase in prescriptions, yet net revenue from EpiPen actually DECLINED by 2%? That implies that Mylan did not keep a dime of the 31% increase and actually went backward in sales, which would have declined even more without the 7% increase in units sold.

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Where did that money go? It went to rebates and fees to the PBMs, wholesalers, etc. We are stuck in a vicious, escalating circle of rising rebates, requiring drug innovators to take ever higher list prices, of which they only keep some fraction or even none. There is no transparency so everyone can know who is taking what part of the drug dollar.

What you also miss is that the pharmaceutical industry invests more of net revenue in R&D–almost 20% on average–than ANY other industry, and its Return on Equity is actually around 42nd place (24th if you only look at the large companies). That reflects the reality that almost 9 out of every 10 drugs invested in by the industry fails. Yes, if you happen to be one of the lucky few who succeed, you may see outsized revenue and profits for a limited exclusivity period. But the vast majority of the few thousand biopharma companies are currently unprofitable, yet 80% of the innovation is being produced among the small, unprofitable companies.

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In other words, drug innovation is an ecosystem that has led to the US producing about 60% of all new drugs, with only about 4.5% of the words’ population. That is an enviable system. And yes, there most certainly are excesses by a minority, but there’s a real risk of throwing the proverbial “Baby out with the bathwater” if we go for easy soundbites rather than the more difficult analysis that is needed.

As to generic drug price rises, they are partly related to the issues above, but even more to the compression of that industry over time, due to multiple mergers, closing of manufacturing lines by regulators and rising costs and timelines of getting approval for new generics. These require separate solutions, as the generics side of the industry i very different from the innovator side. 90% of all prescriptions today are for generics–they are commodities, old drugs that are supposed to be manufactured and sold cheaply forever, to allow the system the financial leeway to pay higher prices for new, better, innovative drugs.

Ron Cohen- Ron Cohen, M.D., President and Chief Executive Officer, founded Acorda Therapeutics, Inc. in 1995. Previously, he was a principal in the startup and an officer of Advanced Tissue Sciences, Inc., a biotechnology company engaged in the growth of human organ tissues for transplantation. Dr. Cohen received his B.A. with honors in Psychology from Princeton University, and his M.D. from the Columbia College of Physicians & Surgeons. He completed his residency in Internal Medicine at the University of Virginia Medical Center, and is Board Certified in Internal Medicine.

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